July 26, 2005 03:00 ET

Wavecom Announces Second Quarter 2005 Results

Second Consecutive Quarter of Profit and Increase in Cash Position

ISSY-LES-MOULINEAUX, FRANCE -- (MARKET WIRE) -- July 26, 2005 -- Wavecom SA (NASDAQ: WVCM) (Euronext Eurolist compartment C: AVM; ISIN: FR0000073066), a leader in pre-packaged wireless communications solutions for automotive, industrial (machine-to-machine) and mobile professional applications, today announced financial results for its second quarter ended June 30, 2005.

Ron Black, chief executive officer, commented, "We are pleased to report our second consecutive quarter of profitability, ahead of our previously stated expectations." He continued, "We are also proud of the recent announcements, particularly the introduction of our newest operating system, and the customer wins over the past several months. The combination of our improved financial performance, new design wins, and new products indicates that we are building momentum. We continue to be optimistic about the long-term growth opportunities for Wavecom and the industrial wireless communication sector."

Second Quarter 2005 Financial Highlights:

All figures are unaudited and reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Condensed consolidated financial tables are provided at the end of this release.

Revenues: Second quarter 2005 revenues were EUR 30.7 million, which is a decline of 20% from the previous quarter. This decrease in revenue was related to one significant customer who continues to have technical difficulties unrelated to Wavecom, as well as no further revenue from software and technology licensing, which was a new revenue source last quarter and something that management explained would be irregular for some time. Revenues for vertical applications were EUR 26.6 million, or 87% of total, while that from handsets was EUR 4.1 million or 13%. Excluding the customer issue and licensing, revenues increased marginally quarter over quarter.

Sales by region were as follows: EMEA (Europe, Middle-east and Africa): 57%, APAC (Asia-Pacific): 32% and The Americas: 11%.

The customer portfolio remained balanced with no single customer representing more than 11% of total revenues in the second quarter. The top ten customers combined represented 62% of revenues as compared to 65% in the previous quarter.

Backlog: Backlog as of June 30, 2005 stood at EUR 30.8 million, compared to EUR 29.9 million at the end of the previous quarter, and was made up of 77% vertical applications, compared to 78% at March 31, 2005. As noted previously by management, backlog is not necessarily predictive of revenue in the quarter as we have significantly reduced our manufacturing cycle time and can, therefore, deliver product much more quickly than in the past. As such, customers continue to place orders later in the quarter so that we now see more "turns" business, meaning orders are placed and fulfilled within the quarter.

Gross Margin: Total gross margin was 47% compared to 45% in the previous quarter. The gross margin once again exceeded our previously estimated range of 33% to 35%. This continued improvement in gross margin is the result of the Company refining its product management process, eliminating low-margin products from the portfolio, improving manufacturing yields on a specific product, and the sale of some previously considered obsolete products.

Operating Expenses: Total operating expenses for the second quarter 2005 were EUR 12.7 million, compared to EUR 15.5 million in the first quarter 2005, down 18% compared to the first quarter 2005, which mainly reflects completion of the final phase of the 2004 restructuring plan. There were no restructuring costs in the quarter, and in fact there was a reversal of restructuring costs of EUR 711 thousand, which was related to the timing of the departures of some employees in the restructuring plan. Operating expenses for R&D, Sales and Marketing and G&A remained flat as compared to the first quarter of 2005.

Profit: Operating profit for the second quarter was EUR 1.6 million compared to EUR 1.8 million of operating profit in the first quarter. Net profit for the second quarter was EUR 3.8 million, or EUR 0.25 per share, up 23% as compared to EUR 3.1 million, or EUR 0.20 per share, in the first quarter 2005. Wavecom recorded a net foreign exchange gain of EUR 2.0 million for the second quarter 2005 compared to EUR 1.4 million in previous quarter.

Cash: Wavecom's cash position was EUR 57.4 million at June 30, 2005, increasing from EUR 54.4 million at March 31, 2005. This increase was a result of continued excellent performance on inventory reduction and accounts receivable.

Business news:

--  Introduction of operating system O.S. 6.55 with download-over-the-air
    capabilities for updating both the operating system and application
    software, as well as Bluetooth functionality;
--  Download over-the-air was successfully demonstrated by DTC fleet
    management in Thailand using Wavecom Open AT™ software;
--  Internet plug-in (TCP/IP) was made a standard feature on all Wavecom
--  Wavecom was chosen by Iskraemeco for their automatic electricity meter
    reading devices;
--  Chinese software developers at the Petroleum University of China chose
    Wavecom Open AT™ software for developing their solutions;
--  Guidepoint announced use of Wavecom solutions in its anti-theft
--  Delta Mobile was chosen as the first North American-based, Wavecom-
    certified design house.

With the stable backlog, increasing "turns" business within the quarter, and new designs beginning to ramp at customers, we remain cautiously optimistic that revenue will grow in the second half. However, as the third quarter is traditionally slow in Europe, revenue this quarter will likely be flat to a modest increase, while we expect fourth quarter top-line growth to be stronger. We expect the gross margin for the second half of 2005 to exceed 35% of revenues, continuing to be above the model range of 33% to 35%. With virtually all restructuring-related expenses now accounted for, the steady-state total operating expenses should be on the order of EUR 13.5 million to EUR 14.0 million, although there may be periodic one-time expenses for product qualifications of up to EUR 1 million.

Conference Call:

Today at 3:00 p.m. Paris time, Wavecom management will host a conference call commenting on its second quarter 2005 results, followed by a presentation to the financial community in Paris at 5:30 pm. Visit the Wavecom corporate website: investors section to listen to the conference call commentary webcast (in English).

Wavecom will announce its third quarter 2005 results on October 27, 2005 at 7:00 a.m. Paris time to be followed in the afternoon by a conference call hosted by management commenting on the results.

About Wavecom

Wavecom is a leading worldwide leader in pre-packaged wireless communication solutions for automotive, industrial and mobile professional applications. Wavecom's solutions include all the software and hardware elements that are necessary to develop truly innovative wireless devices, as well as the development tools and services needed to bring them to market quickly and easily.

Founded in 1993 and headquartered near Paris in Issy-les-Moulineaux, Wavecom has subsidiaries in Hong Kong (PRC), San Diego (USA), and Darmstadt (Germany). Wavecom is publicly traded on Euronext Paris (Eurolist) in France and on the (NASDAQ: WVCM) in the U.S.

This press release contains forward-looking statements that relate to the company's future business performance, operating expenses and financial results and objectives. The company's business is subject to numerous risks and uncertainties, including whether it will be commercially successful in implementing its strategic reorientation, whether there will be continued growth in the vertical markets and demand for the company's products, an unanticipated decrease in orders from one of the company's principal customers or customer cancellation or scale-down of a major project, the company's reliance on a single contract manufacturer in China for all production requirements, dependence on third parties, changes in foreign currency exchange rates, new products or technological developments introduced by competitors, customer and supplier concerns regarding the company's overall financial position, and risks associated with managing growth. Unfavorable developments in connection with these and other risks and uncertainties described in the Company's reports on file with the Securities and Exchange Commission could cause the company to not achieve the anticipated or targeted performance or results. As a consequence, the Company's actual performance and results may be materially different from those expressed by the forward-looking statements above.

-- Financial Table Follow --

Contact Information

  • For further information please contact:

    Lisa Ann Sanders
    Director, Communications and Investor Relations
    Tel. +33 1 46 29 41 81
    Email Contact

    John D. Lovallo
    Lovallo Communications Group, LLC
    Tel: + 1 203-431-0587
    Email Contact